Quite an interesting Monday! A very interesting article from Reuters that, for once, seems to understand the complexity of the economical of a recently industrialized country. See for yourself
Reuter's paper or the copy-pasted text from their page below (your choice):
There is talk of investments, and the need for
shared prosperity - a favorite topic of Rousseff's. But in these
meetings, the conversation inevitably comes back to the severe
bottlenecks that have brought the
economy back to earth after a historic boom last decade.
"
Brazil needs to focus now on issues like productivity and reducing costs, because that's the only way we can grow in a sustainable
fashion," said Marcelo Odebrecht, who runs a global conglomerate that bears his family's name.
"I
think we've realized that, and the president is moving in that
direction," he said in an interview. "That's her focus - looking at
these obstacles, and getting
Brazil growing again."
The
meetings, which have intensified in recent weeks, are a critical part
of Rousseff's efforts to convince Brazilian executives to start
investing again and help lift the
economy following two straight years of disappointing growth.
The
chats with well-known figures such as Odebrecht and mining and energy
tycoon Eike Batista come as Rousseff, a Marxist guerrilla in the 1970s
who evolved into a pragmatic leftist, struggles with a perception that
she is unfriendly or even hostile toward the private sector.
Just
past the halfway point of her four-year term, the 65-year-old daughter
of a Bulgarian aristocrat has indisputably made many enemies in the
business world. She has condemned
banks
for charging high interest rates, intervened heavily in Brazil's
exchange rate, and undertaken contentious reforms such as a cut in
electricity rates that wiped billions of dollars from the market value
of foreign and locally owned companies.
Rousseff
has said all her decisions respected existing contracts and laws, and
were necessary to try to return Brazil's economy to its glory days of
fast growth in the late 2000s.
Her ability to convince business leaders that's true will be key to the rest of her presidency.
Without
a rebound in investment, which has steadily fallen since Rousseff has
been in office, Brazil will not have the resources to address
supply-side bottlenecks in infrastructure and labor that caused the
economy to grow just 0.9 percent in 2012.
A persistent economic slump could, in turn, endanger Rousseff's expected bid for re-election next year.
Reuters
spoke with several ministers, presidential aides and business leaders
who have participated in the meetings, trying to determine why
executives have generally not yet heeded Rousseff's call to take risks
and let their "animal spirits" flourish - a reference to a term used by
the British economist John Maynard Keynes, one of her favorite
historical figures.
Business
leaders say that Rousseff seems receptive to their feedback and focused
on the right problems. But she is also not shy about defending her
strong belief that the state must try to shape the economy so that all
Brazilians can prosper.
That
philosophy has guided Brazil for the past 10 years under Workers' Party
rule, and helped make it one of the few countries where inequality fell
as the economy grew. Yet it may also explain why some of her decisions
have backfired, some say.
"She
always challenges these guys - You have to think as a business, but you
have to think about Brazil too," said Trade and Industry Minister
Fernando Pimentel, one of Rousseff's closest aides, who sits in on some
of the meetings.
"You want to earn
money, that's natural. But how is everybody going to earn money? How
will everybody get better? It can't get better just for one group, only
for you," Pimentel said in an interview.
A VERY POPULAR LEADER
Since
taking office on New Year's Day in 2011, Brazil's first woman president
has earned mostly high marks from voters. Her personal approval rating
has hovered in the high-70s, thanks largely to record-low unemployment
levels that have been sustained despite the lackluster economic growth.
By
cracking down on corruption and embracing some free-market policies
such as the privatization of airports and highways, Rousseff has moved
beyond the shadow of her popular predecessor, Luiz Inacio Lula da Silva,
who plucked the career civil servant from relative obscurity and helped
her win her first-ever campaign - for the presidency - in 2010.
In
a region characterized by charismatic leaders such as Lula and
Venezuela's Hugo Chavez, Rousseff stands out for being gray - or
intimidating, depending on the beholder.
Aides
say she detests ceremonial aspects of the presidency, eschewing dinners
and the schmoozing with congressmen and foreign visitors that Lula
excelled at.
She rarely gives news
conferences, and she abandoned Twitter almost immediately after she won
the election. "Let's chat more often in 2011," her most recent tweet
says.
Yet, for the most part,
Brazilians see these as the signs of a serious, hard-working leader.
Especially among the poor, whose lives have improved dramatically in the
past decade, Rousseff is seen as a kind of stern benefactor - the
"mother of Brazil," as Lula baptized her in 2010.
In the corporate suites of Sao Paulo, the country's business and financial capital, executives tend to take a dimmer view.
While
virtually no one accuses Rousseff of being a hard leftist in the vein
of Chavez or Bolivia's Evo Morales, many say she has taken too
heavy-handed a role in managing Brazil's $2.2 trillion economy - and
scared off some investors who never quite know what she'll do next.
"I
think most investors understand she's not reintroducing old-style
socialist ideas. That's not what this is about," said Paulo Vieira da
Cunha, a former deputy governor at Brazil's central bank who is now a
partner at Tandem Global Partners, a hedge fund in New York.
"What
it is about is her belief in central planning, in an active industrial
policy, where the government makes critical decisions," he said. "That's
not unique to Brazil, by the way ... But it has bothered some people."
A HEAVY HAND
Indeed, there is no big economic sector that Rousseff hasn't touched in a meaningful way in the past two years.
Brazil's
banking industry was turned upside down by the central bank's surprise
decision, starting in Rousseff's eighth month in office, to slash its
benchmark interest rate, which has since fallen from 12.5 percent to an
all-time low of 7.25 percent.
Rousseff
publicly shamed private-sector banks for not cutting their lending
rates fast enough to match the benchmark's declines, calling their
actions "inadmissible." Meanwhile, monthly inflation hit its highest
level in almost eight years in January, leading some investors to say
the cuts went too far.
Rousseff
has also been personally involved in the management of the exchange
rate, which has oscillated between 1.52 and 2.13 per dollar during her
term. The government has tried to alternately strengthen or weaken the
currency in unpredictable ways, playing havoc with companies' business
plans.
Even the business world's favorite policy tactic - cutting taxes - has generated uncertainty under Rousseff.
Instead
of announcing an across-the-board cut, Rousseff has moved
sector-by-sector, implementing targeted tax reductions of sometimes
uncertain duration for industries like autos or home appliances. Her
government has made more than two dozen separate announcements of
stimulus packages.
Finally, Rousseff has made some decisions that openly work against the interests of
private capital.
They include forcing state-run oil giant Petrobras to import gasoline
and sell it at a loss, a policy that has jeopardized the company's
investment plans and contributed to a 30 percent decline in its publicly
traded shares since she took office.
All
told, Brazil's main stock index has tumbled 20 percent during
Rousseff's presidency - compared to an 18 percent gain in Mexican shares
and a 20 percent rise in the
Dow Jones Industrial Average in the United States during the same period.
The
Eurasia Group, a think-tank, said in a note in February that the
government's policies and poor communication have led to "a credibility
problem with the private sector."
The result: Investment fell 4 percent in 2012, and now stands at just 18.1 percent of gross domestic product.
That gives Brazil the lowest such ratio among big Latin American economies, well behind the rates of 28 percent or so in
Peru,
Colombia and Chile. As a result, some among Rousseff's economic team
fear Brazil's potential economic growth rate may be capped at a mediocre
3 percent or so for years to come.
TRYING HER BEST?
Inside
the Palacio do Planalto, Rousseff's modernist palace on the high plains
of central Brazil, one word best describes the reaction to the way some
investors are behaving: bewilderment.
To
hear her ministers and aides tell it, Rousseff has spent much of her
presidency explicitly catering to Brazil's business community. In fact,
many of the policies for which she has been most criticized were the
results of feedback she received from executives, they say.
There
is truth to that. In a keynote speech in 2010 prior to the presidential
campaign, Armando Monteiro Neto, then the head of Brazil's main
industrial lobby group CNI, cited taxes, interest rates, an overvalued
real, and high input costs such as electricity as the economy's main
problems.
Rousseff has made faster
progress on all those issues than any economist or political analyst
predicted, although some initiatives - including her recent plan to
force electricity costs down - have caused heavy losses for certain
companies.
"I think she's done
what business people have asked for, and with a certain speed," said
Luiza Helena Trajano Rodrigues, the chief executive of retailer Magazine
Luiza and another executive who has met frequently with Rousseff.
"Some of the criticism seems a little strange," Rodrigues said in an interview. "She's done a lot of difficult things."
Despite
being elected primarily as a figure of continuity, Rousseff has made
some pro-business moves that were unthinkable under Lula, who rose in
politics as a labor union leader.
She
stood up to criticism from the left wing of her Workers' Party to
privatize airports in Sao Paulo, Rio de Janeiro and elsewhere. She also
moved to cut pension benefits for incoming government workers - a
decision that will help shore up Brazil's finances, which she has
maintained in orderly shape.
One
interpretation of Brazil's struggles is that after the last decade's
boom lifted some 30 million people from poverty, the policies that
worked under Lula had run their course.
Namely,
there was no more room to grow the economy by expanding consumer credit
- the main engine of growth from 2007 to 2010. So it has fallen to
Rousseff to make tough structural reforms that could eventually open up a
new era of economic growth - but have generated uncertainty in the
short term.
The minister, Pimentel,
who has known Rousseff for four decades, said the dire global economy
also caused her to become more reformist around the one-year mark of her
presidency.
"She clearly saw the
bottlenecks that the Brazilian economy had, and has," he said. "She knew
we couldn't put off facing these bottlenecks because in a world totally
convulsed by the European crisis, we could risk totally losing our
competitiveness."
SHARING THE WEALTH
Racing to prevent such a scenario, Rousseff has thrown open her doors to a variety of business leaders from
finance,
steel, aviation and elsewhere - and has won over some executives who were skeptical of her.
She
is mostly listening for new policy ideas and trying to gauge the
economy's health. But she is also not shy about asking her guests to
part with their money.
For example,
in a January 10 meeting with Odebrecht, she asked him to consider
investing in upcoming airport concessions, an aide said. In a January 16
sit-down with Batista, whose holdings include oil company OGX, Rousseff
urged him to participate in a major round of oil auctions later this
year.
Rousseff has also gathered
two dozen or so top executives at a time for regular "CEO forums" inside
the palace, with the next pow-wow scheduled for March 19.
Still, giving executives face time has been no guarantee of convincing them to invest.
Rousseff's closest contact in the business world is arguably Jorge Gerdau Johannpeter, a 76-year-old
steel
magnate whom she appointed to lead the Chamber of Management and
Competitiveness, another nexus between government and the private
sector. Gerdau is often in Brasilia, and sat down with Rousseff for four
hours in one meeting in January.
Yet
on February 21, the company which he chairs - Gerdau SA, the world's
No. 2 maker of steel for builders - said it was cutting its five-year
investment plan by 17 percent.
It
said it slashed capital spending by 24 percent in the fourth quarter
alone, and attributed its decisions to "uncertainties hurting the global
economy." A spokeswoman for Gerdau did not respond to multiple requests
for an interview.
The malaise in
Brazil's private sector explains why Rousseff may be vulnerable to a
more market-friendly candidate, such as PSDB party Senator Aecio Neves
or Pernambuco state Governor Eduardo Campos, in next year's election.
Yet
polls indicate that, for now, Rousseff is popular enough to win easily.
Meanwhile, an unexpected 0.5 percent rise in Brazil's overall
investment in the fourth quarter of 2012 suggests that some business
leaders, too, may be coming around.
Odebrecht,
who after meeting Rousseff said his company would invest $8.5 billion
this year, up a third from 2012, said executives may learn to live over
time with some discomfort.
"People
may argue - 'Oh, I would have done this a different way,'" he said. "But
the concepts and intentions, I think it's tough to criticize her. What
she's doing is right for Brazil."
(Additional reporting by Ana Flor; Editing by Todd Benson, Kieran Murray and Tim Dobbyn)
Reuter's original paper
